Diesel users feel the pain of oil spikes

Published: February 24, 2011

With the world economy still fragile and political unrest raging like wildfire across the oil-producing countries of the Middle East and North Africa, it's only a matter of time before the impact is felt on fuel prices in New Hampshire. Diesel customers are already feeling the pain.Regular gasoline prices, according to the American Automobile Association, have eclipsed the $3 mark in New Hampshire since mid-December, but diesel price have been above $3 since early October. Now they are making a run at $4, with the average price running about $3.61 per gallon, rising nearly 20 cents in the last month alone. Some filling stations around the state have topped $3.70 and even $3.80, as posted on the price watch site GasBuddy.com.Last year at this time, diesel was at $2.84, a price slightly lower than premium gas.Why does unrest in far-flung oil-producing countries like Libya affect prices at the pump in New Hampshire, especially when the United States gets about half of its oil from home and half from Western Hemisphere sources, largely Canada?"Oil is a global commodity," said Dr. Massood Samii, chair of the international business department at Southern New Hampshire University. "If Libya cuts off oil production, places that get their oil from there have to go to the international market to make up the difference." That, in turn, causes prices to rise across the board.So with oil skyrocketing some $10 in a single day to hover at about $100 per barrel for the first time since October 2008, can the fuel surcharges used by diesel-dependent industries such as truck shipping, garbage haulers and even ski areas added back then be making a comeback?"It all depends on the oil markets," said Samii, who is a former chief economist for OPEC.While diesel usage is less seasonal than gasoline, he said, it is the main fuel used in transportation, agriculture and production, so changes in price throughout the year can be pervasive.Doug Holler, general manager of the Dartmouth Skiway, said the facility's biggest use of diesel fuel is for grooming trails."Fuel costs are a huge concern for the out years and may cause us to change our operational parameters in as-of-yet-to-be-determined ways, but it could be that we groom less or more selectively," he said. "It may also manifest in snowmaking as well, with being more selective in the window of opportunity, location and in depth of cover."Holler added, "We are a fixed-cost business -- and this will definitely hit the bottom line, and eventually the consumer."
As for diesel's impact on food prices, said Samii, "we have already started to see the price of products increasing. With a rise in oil and diesel prices, a further rise in food prices could be relatively immediate. It could be quiet an impact."State Agriculture Commissioner Lorraine Merrill said current diesel prices - not to mention the potential for spikes - couldn't come at a worse time for New Hampshire's farmers."The spring planting season is just weeks away," said Merrill. "Tilling, production, transport - they're all fuel-intensive tasks."Merrill said early spring is one of the busiest times of the year for farmers, but gas and diesel prices are usually a bit lower in a typical spring -- something that's not expected this year."High diesel prices can affect the whole food-production system," said Merrill, leading to higher food prices.In fact, the Consumer Price Index in the Northeast rose 1.6 percent in January, the highest since 2009. Global price increases have occurred primarily because of pressures on food, including consumption changes and crop failures, but when the fuel price spikes are added in, food prices are expected to go even higher.And that's a big concern for the New Hampshire Food Bank.The food bank already received a broadside hit directly due to diesel prices with both the deliveries it receives and those it transports."As prices increase, we've seen a significant burden on our already tight operating budget," said Bruce Wilson, director of operations for the Manchester-based agency.The Food Bank supplies some 400 other agencies with food deliveries and receives donations from grocery stores and other groups like Feeding America, formerly America's Second Harvest."There has also been a secondary impact as the agencies we serve can't afford to come to us to pick up food, so we're forced to do even more deliveries," he said, adding that the Food Bank is watching its own bottom line closely, shaving expenses where it can and consolidating deliveries.And as prices in gas and food rise, it pushes more people into economic hardship, further increasing the number of mouths the Food Bank has to feed. "In the end, it's just very hard to predict what's happening," said Wilson.The price of another important petroleum distillate -- kerosene -- is worth looking at as well.While used by a small percentage of Granite Staters as a heating fuel - the price is currently more than $3.95 a gallon -- kerosene derivates are used to make jet fuel.According to the Air Transport Association, every dollar increase per barrel of oil increases an airline's fuel expenses by $464 million.This may translate into fuel surcharges and even air fare increases added on to your spring break or summer vacations. - CINDY KIBBE/NEW HAMPSHIRE BUSINESS REVIEW

This article appears in the February 11 2011 issue of New Hampshire Business Review